NEW DELHI: India’s inflation hit a nine-month low in February, data showed yesterday, but analysts saw little chance of any immediate interest rate cut.
Slowing inflation may also have come too late for the embattled Congress-led government which faces elections next month and trails in opinion polls.
Inflation measured by he Wholesale Price Index, the closest watched cost-of-living monitor, eased to 4.68 percent in February from a year ago from 5.05 percent a month earlier. The figures assume importance as they are the last before the central bank meets on April 1 for its regular monetary policy-setting meeting.
But while inflation is moving in the right direction, chances of near-term rate cuts to boost sluggish growth remain slim with the hawkish bank likely to go into a wait-and-watch mode, economists said.
The bank “is unlikely to entertain the notion of rate cuts just yet”, said Capital Economist’s India analyst Miguel Chanco.
The Wholesale Price Index drop takes inflation below the central bank’s five percent “comfort” level and beat market forecasts.
The figure comes after consumer inflation, compiled from a smaller goods basket, fell to a 25-month low in February — still unacceptably high for the central bank, economists said.
The bank will not want to risk undermining its inflation achievements “by jumping the gun on interest rate cuts”, said Chanco, forecasting unchanged rates in April.
Fearing a voter backlash, the government has been desperate to tame inflation, which causes huge suffering to its legions of poor supporters. It also wants to revive the economy as it seeks a third term.
Growth slackened last year to a decade-low of 4.5 percent and the government expects 4.9 percent expansion in this fiscal year to March. Bharatiya Janata Party, seen by business as better able to get the economy back on track, is tipped to win the elections due in April-May.
Business has clamoured for a cut in the benchmark lending rate, now at a hefty eight percent.
“This easing of inflation will hopefully create some space for monetary policy easing,” said Sidharth Birla, president of the Federation of Indian Chambers of Commerce and Industry (FICCI).
The bank has hiked rates three times since September and Birla said 71 percent of chief executives in a FICCI survey called high credit costs “a key factor holding back fresh investments” to spur the economy.
But the central bank fears economic damage from stubborn inflation and says prices must be decisively tamed to achieve the near double-digit growth required to create jobs and reduce poverty.
AFP
